Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits, Renewable Electricity Certificates, or Tradable Renewable Certificates (TRCs), are tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource (renewable electricity). Solar renewable energy certificates (SRECs) are RECs that are specifically generated by solar energy.

These certificates can be sold and traded or bartered, and the owner of the REC can claim to have purchased renewable energy. According to the U.S. Department of Energy's Green Power Network,[1] RECs represent the environmental attributes of the power produced from renewable energy projects and are sold separately from commodity electricity. While traditional carbon emissions trading programs use penalties and incentives to achieve established emissions targets, RECs simply incentivize carbon-neutral renewable energy by providing a production subsidy to electricity generated from renewable sources. It is important to understand that the energy associated with a REC is sold separately and is used by another party. The consumer of a REC receives only a certificate.

In states that have a REC program, a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces (for reference, an average residential customer consumes about 800 kWh in a month). A certifying agency gives each REC a unique identification number to make sure it doesn't get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying REC can then be sold on the open market. "Retirement occurs when a Renewable Energy Certificate (REC) is used by the owner of the REC. Use of the REC may include, but is not limited to, (1) use of the REC by an end-use customer, marketer, generator, or utility to comply with a statutory or regulatory requirement, (2) a public claim associated with a purchase of RECs by an end-use customer, or (3) the sale of any component attributes of a REC for any purpose. Once a REC is retired, it may not be sold, donated, or transferred to any other party. No party other than the owner may make claims associated with retired RECs."[2]

The purchasing of a REC is equal to purchasing a claim to the environmental attributes of renewable electricity generation without purchasing or consuming the clean electricity itself. The clean electricity may have been inserted on a grid that is not connected to the grid that the final user of the REC is connected to. Therefore it cannot be said that the user is in any sense consuming the renewable energy itself. REC purchase does not affect how much renewable energy was actually generated - only who gets credit for using certain renewable energy that is being generated.

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There are two main markets for renewable energy certificates in the United States - compliance markets and voluntary markets.

Compliance markets are created by a policy that exists in 29 U.S. states, plus the District of Columbia and Puerto Rico, called Renewable Portfolio Standard. In these states, the electric companies are required to supply a certain percent of their electricity from renewablegenerators by a specified year. For example, in California the law is 33% renewable by 2020, whereas New York has a 24% requirement by 2013.[3]Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs; in the California example, the electric companies would need to hold RECs equivalent to 33% of their electricity sales.

Voluntary markets are ones in which customers choose to buy renewable power out of a desire to use renewable energy. Most corporate and household purchases of renewable energy are voluntary purchases. Renewable energy generators located in states that do not have a Renewable Portfolio Standard can sell their RECs to voluntary buyers, usually at a cheaper price than compliance market RECs.

RECs can be traded directly from buyer to seller, but third party marketers, brokers, or asset managers are commonly found in the marketplace. Renewable generation facilities will often sell their credits to these entities, who then resell them on the market at a later date.[4]

In the United States, Arcadia Power is a certified REC seller that sells primarily to residences and small businesses and ensures they meet the EPA definition of "using 100% green power."[5][6]

Prices depend on many factors, such as the vintage year the RECs were generated, location of the facility, whether there is a tight supply/demand situation, whether the REC is used for RPS compliance, even the type of power created. Solar renewable energy certificates or SRECs, for example, tend to be more valuable in the 16 states that have set aside a portion of the RPS specifically for solar energy.[7] This differentiation is intended to promote diversity in the renewable energy mix which in an undifferentiated, competitive REC market, favors the economics and scale achieved by wind farms.

In the United States spot prices for SRECs generally decreased from 2010 to 2014. In New Jersey the spot price for a 2010 SREC was $665.04 in July 2010 and about $160 in May 2014 for SRECs generated in different years. In Delaware the spot price for a 2010 SREC was $255 in July 2010 and about $50 in May 2014 for SRECs generated in different years. [8][9][10][11] Rates for RECS purchased through Arcadia Power cost $0.01—0.015 per kWh.[12]

In Canada, 2008-09 BCHydro offers $3 /MWh for "green attributes", for long-term contracts, 20 plus years. Many Independent Power Producers believe that this is much less than "fair market value", but have no alternative.

While the value of RECs fluctuate, most sellers[13] are legally obligated to "deliver" RECs to their customers within a few months of their generation date. Other organizations will sell[14] as many RECs as possible and then use the funds to guarantee a specific fixed price per MWh generated by a future wind farm, for example, making the building of the wind farm a financially viable prospect. The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants.[15]

RECs are known under functionally equivalent names such as Green Tags or Tradable Renewable Certificates (TRCs), depending on the market. The U.S. currently does not have a national registry of RECs issued. The Center for Resource Solutions administers a voluntary program which attempts to ensure RECs are properly accounted for and no double counting takes place. Under the Green-e Energy program, participants are required to submit to an annual Verification Process Audit[16] of all eligible transactions to ensure the RECs meet the requirements for certification. The certification process requires 3rd party verification to be performed by an independent certified public account or a certified internal auditor. CRS maintains a list of auditors who meet the criteria to be listed on the program website.[17] Increasingly RECs are being assigned unique ID numbers and tracked through regional tracking systems/registries such as WREGIS, NEPOOL, GATS, ERCOT, NARR, MIRECS, NRTEC, NC-RETS and M-RETS.

"Additionality" in the context of greenhouse gas (GHG) regulations means that a purchased renewable energy certificate introduces new renewable energy onto the electricity grid beyond what would have happened without the project or "business as usual". The U.S. Environmental Protection Agency (EPA) favors performance based measures of additionality, such as the megawatt hour (MWh) equivalent per REC.

Whereas air and water pollution travels across state and national boundaries irrespective of its origin, the value of RECs and the emergence of RECs markets depend very much on the markets created state by state through legislative action to mandate a Renewable Portfolio Standard. Such a balkanized approach to establishing RECs markets and incentives state by state creates issues of equity as some states could legitimately claim that their neighboring states (and their electricity consumers) with voluntary RPS are operating as free riders of pollution prevention, paid for by states (and their electricity consumers) with mandatory RPS. We can learn from EPA's SOx and NOx cap and trade program regarding how the principle of additionality with a national standard provided a benchmark for measuring and validating the commodification of pollution prevention credits that lead to market-driven initiatives with proven results in improving regional and national air quality.

In states with a Renewable Portfolio Standard, a RECs purchase enables the utility company to meet its minimum renewable electricity percentage without having to install that renewable generating capacity itself, regardless of the source of generating renewable energy. By analogy, in the EPA cap and trade program, a "clean" utility in one state can sell its NOx credits to a "dirty" utility in another state that would otherwise have to install additional smokestack scrubbers.

The United States Environmental Protection Agency claims to have the highest percentage use of green power of any federal agency. In 2007, it offset the electricity use of 100% of its offices. The Air Force is the largest purchaser in the US government in absolute terms, purchasing 899,142 MWh worth of RECs. Among colleges and universities, the University of Pennsylvania in Philadelphia is the largest purchaser of RECs, buying 192,727 MWh of RECs from wind power. The corporate leader is Intel, with 1,302,040 MWh purchased in 2007, and the largest purchaser among retailers is Whole Foods, which purchased 509,104 MWH, or enough RECs to offset 100% of its electricity needs.